Will housing mess drag economy down with it?

Mortgage defaults are probably still rising. But the overall dollar impact of these painful events  is still relatively small.

By way of comparison, the meltdown of the savings and loan industry in the late 1980s — and the resulting real estate collapse and recession — eventually cost taxpayers hundreds of billions of dollars to clean up. That real estate boom was largely built on commercial projects —collectively worth much more than the residential boom we just went through.

Today, commercial real estate is holding up well: Next time you’re visiting a city, count the cranes on the downtown skyline. Many cities are seeing strong demand for new office space.

A lot depends on how consumers, investors and especially lenders react to the current situation. So far, the economy seems to be taking the housing slump in stride. Consumers, while they report to pollsters that they’re nervous, are still spending and, overall, wages are going up to help them pay the bills.

Despite recent steep plunges, the stock market has been in the grip of a long bull market. And while lenders are getting choosier about who they lend to, interest rates are still relatively low and money is still available to solid borrowers. If we all get spooked, the resulting bear market and pullback in lending and spending could make things worse. But even then we’re a long way from a depression.

So do your part: Take a deep breath, relax and keep spending.

I am getting ready to purchase a house and wanted to know what my FICO scores were so I purchased a copy from the three main credit reporting agencies. In the reports I noted that in the tips section it stated that too many credit checks can hurt your score. While my score is from 770 to 790, how can I shop around for the best mortgage rate without hurting my FICO score?
--  Frank J., Holts Summit, Mo.

Not all inquiries count against you — especially if they are clustered during a short period when it's clear you're rate shopping.

To save yourself time, try one of the independent personal finance sites like bankrate.com. They'll provide updated info for loans available in your region. You won't know for sure until you contact the lenders and confirm the terms. And keep in mind that low rates aren't the only criteria — especially if it lands you with a lender you've never heard of who may be floating teaser rate loans that mysteriously dry up when you formally apply for the loan.

Lastly, with a strong 770 FICO score, keep in mind that you should qualify for the most attractive terms. Avoid any loan that requires a prepayment penalty. Ask who is going to service the loan. Don't get steered into exotic loans like option arms or "low-doc" or "low-down" loans that increase your costs.  These are the "subprime" loans that many people with perfectly good credit have been sold — because they generate much more income for the broker.

Above all, ask lots of questions. If you don't get good answers, take your business elsewhere. Customers like you with good credit histories are still in great demand by lenders.

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